UPM Annual Report 2022

BUSINESSES

UPM

BEYOND FOSSILS

RESPONSIBILITY

GOVERNANCE

ACCOUNTS FOR 2022

TOWARDS AN ENERGY TRANSITION UPM ENERGY

Future electricity markets require flexibility and zero-carbon solutions.

OUR STRENGTHS • Growing the zero-carbon electricity generation asset portfolio • Strong track record in physical and financial electricity markets • World-class expertise in the optimisation of industrial energy

OUR DIRECTION • Profitable growth in zero-carbon electricity generation • Embracing the decarbonisation of society • Solutions for industrial energy excellence

PLANNED ACTIONS FOR 2023 • Manage remarkable portfolio growth with OL3 nuclear power plant unit • Continue exploring UPM’s opportunities in energy transformation • New projects for the stream water programme

CASE

KEY FIGURES 2022

OFFERING FLEXIBILITY IN TIMES OF CRISIS

tion volumes reached a good level and the ramp-up of Olkiluoto 3 also provided addi tional nuclear capacity during the autumn. We continued the extensive renovation and modernisation of the Kuusankoski hydropower plant. The phased project will be fully completed during the first quarter of 2023. The plant’s average annual energy production is expected to increase from the current 180 GWh to 195 GWh. We are responding to the growing need for carbon-dioxide free electricity as society electrifies and moves away from fossil fuels. The largest ongoing investment project is the finalisation and ramp-up of the Olkiluo to nuclear power plant unit 3 by Teollisuud en Voima (TVO). The Olkiluoto 3 project was scheduled to start regular electricity In 2023, we will grow our carbon free electricity generation by nearly 50%. Nuclear energy plays a key role in enabling a fossil-free society

production in 2022 but due to issues that were detected during the testing phase, regular electricity production will start in April 2023. UPM’s share of the new unit’s pro duction will be approximately 500 MW generated through Pohjolan Voima’s own ership. The Olkiluoto 3 will significantly increase the supply of CO 2 -free electricity in Finland. Restoration of two rapids re-opened routes for migratory fish There are many unnecessary migratory barriers such as defunct dams in Finland, and by removing them, biodiversity can be enhanced. In 2022, we completed two restoration projects, Sapsokoski and Arvajankoski rap ids, as part of our stream water programme. In total, the restoration of these rapids freed up over 150 kilometres of routes for migratory fish. Restoration was carried out in co-operation with stakeholders and Arvajankoski also received funding from the Ministry of Agriculture and Forestry’s Nousu programme.

SALES

COMPARABLE EBIT

COMPARABLE ROCE

PERSONNEL on 31 Dec. 79

Electricity is a commodity that is difficult to store. Renewable wind power is only available when it is windy and solar power when it is sunny. But supply and demand of electricity need to be in balance at all times. UPM Energy is the second largest elec tricity producer in Finland and UPM’s mills also offer flexibility in electricity consump tion. We contribute to the maintenance of the electricity system. We help when there is a risk of peaking prices or even shortag es: either by reducing consumption or by increasing production through hydropower plants. Nuclear energy offers the base load for a stable electricity system when wind or solar power is not available. Functioning electricity markets are de pendent on the actions of market partici pants. Variation in prices is the incentive for market participants to balance supply and demand in all situations. Stable markets and regulation lay the ground for future investments in electricity supply. In times of crises, the impacts of any political market interventions should be thoroughly assessed to avoid an imbalance of electricity supply and demand.

EURm 734

EURm 381

% 11.6

+40%

+41%

+0pp

More key figures on page 128

UPM has a unique dual role in the electrici ty market: we consume a lot of electricity in our mills, but we also produce it both at the mills and in UPM Energy’s energy assets. We are a major player in the Nordic electricity market. We produce competitive, CO 2 -free hydropower in our own plants and through shareholdings as well as nuclear power through shareholdings. UPM Ener gy’s hydropower plants meet the growing demand for renewable energy. Hydropower offers rapid adjustment to an electricity system in which flexibility in other pro duction units is decreasing and weath er-dependent solar and wind power are becoming increasingly important. Flexible hydropower balances out the system in an increasingly volatile market, while nuclear

power ensures reliable baseload capacity for the system. The electricity generated is sold to the Nordic Nord Pool power exchange. We trade directly in physical and financial power markets. We also provide optimisa tion and consumption flexibility services to industrial electricity users and other energy companies. Market-oriented solutions are contrib uting to the transformation of the energy market, and new transmission connections will increasingly link the Nordic elec tricity market to the continental Euro pean market. Electrification will play an important role in moving society away from fossil-based energy sources. UPM Energy is in an excellent position in a changing

energy market with its CO 2 -free electricity production. Markets have become more volatile In 2022, the price of electricity rose to a record level throughout Europe. Russia has tightened its grip on the natural gas pipelines, and Central Europe is consider ing how to replace natural gas as an energy source. The importing of Russian electric ity to Finland ceased during the year. As a consequence of decreased Russian energy supply to Europe, electricity prices shot up in Europe. UPM Energy benefitted significantly from higher electricity prices and succeeded in optimising production and creating value in a volatile market. Hydropower produc

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UPM ANNUAL REPORT 2022

UPM ANNUAL REPORT 2022